Angus Milledge, Head of New Business EMEA at SAP Concur
Tax season is around the corner, and stress may be on the rise for finance leaders tasked with navigating the complex tax landscape of today’s business environment. Particularly for businesses operating in multiple markets, with a host of international customers, navigating Value Added Tax (VAT), Goods and Services Tax (GST), other indirect taxes and intricate regulations present a significant challenge.
This in turn poses a significant risk for multinational companies, which may be obligated to collect and pay VAT and GST in the countries where they operate. Despite the potential for recovering various types of VAT, the process remains a barrier for many organisations with 54% of eligible VAT remaining unclaimed due to a lack of expertise in the tax landscape. There are also the risks of double taxation, unintended non-taxation and steep penalties for non-compliance: all of which could be highly damaging to the business.
Facing the challenge of both reclaiming taxations effectively and ensuring compliance, finance leaders can take advantage of emerging technologies like machine learning and artificial intelligence.
Reclaiming your VAT with ease
According to SAP Concur research, VAT was already the prevalent tax system in more than 85% of countries. However, reclaiming VAT is no small feat; while many countries allow VAT reclaims and have established procedures for claiming tax refunds, finance teams may be unfamiliar with the many reclaim pathways as they are not widely advertised.
Industries that involve significant cross-border transactions, high-value purchases, or large-scale investments often suffer the most from not reclaiming taxes. Some industries include engineering, technology and retail, where employees may overlook varying VAT rates on expense submissions because they are outside their primary job functions, leading to unsubmitted eligible transactions. This can represent a significant missed opportunity for businesses, as if their employees believe they cannot claim tax back, then of course the company will see a rise in unclaimed tax.
In addition, many submission portals are inefficient and overly complex, resulting in a high rate of rejected claims. In a webinar survey of more than 200 finance, tax and compliance professionals, more than half (53%) identified factors such as digitalization, rapidly changing rates and regulations, shifting employee spending behaviour and resource limitations, as drivers for the re-imagining of their VAT programs.
There are many things to take into consideration when claiming tax back—are your teams skilled enough? Are processes well known? What tax can be claimed back?
Upskilling your teams in intelligent tech
Adopting intelligent technologies like artificial intelligence (AI) and machine learning (ML), can support finance leaders with expediting and streamlining tax processes, facilitating the submission and review of tax reclaims seamlessly. For example, AI aids in quickly identifying errors in VAT transactions and pinpointing areas eligible for reclaims, simplifying and accelerating the reclaim submission process.
However, without hands-on human engagement, the use of intelligent technology can reduce efficiency, increasing complexity for finance departments. For example, while intelligent systems such as AI and ML can perform tasks with speed and accuracy, they still rely on human guidance and input to function optimally. Human insight is needed to set goals, interpret results and make decisions based on context and intuition.
Human hands ensure that data management is aligned with business goals and vision, while AI provides leaders with the speed, accuracy, and efficiency they require. Intelligent tech is empowering teams to excel as VAT operatives by swiftly and accurately identifying reclaimable transactions, detecting errors, and submitting claims promptly, all without requiring specialised qualifications. This not only reduces company expenses associated with hiring VAT experts for each region but also ensures that employees are equipped to manage VAT reclaims across global landscapes effectively.
By finance leaders investing their teams and upskilling them on new technology, businesses can modernise their VAT programmes – improving transparency, controls, and efficiencies while reducing costs and mitigating risks. This is seen with the rise of automated expense management solutions becoming essential for handling large volumes of data for accurate tax claims and effective tax risk management.
Getting on top of the ever-shifting regulations
The constant flux of global regulations also poses a growing challenge for finance and travel managers.
SAP Concur’s expense data shows that remote working, as an example, has prompted adjustments in VAT regulations and tax deadlines. These changes have inadvertently exposed companies to risks as VAT and GST regulations change, and also altered employee spending patterns in a distributed workforce, leading to increased domestic VAT implications for expenses such as shipments and public transportation, even with reduced overseas travel.
Finance leaders cannot predict the future, and attempting to anticipate how our environments will affect global regulations is an impossible task. Therefore, businesses should focus on prioritising reliable VAT compliance solutions to effectively mitigate risks and stay ahead of shifting global regulations. This can include actively monitoring regulatory updates by leveraging tax technology to automate compliance processes, track regulatory changes, and analyse the potential impact of tax regulations on their business. With this information, businesses can develop contingency plans to mitigate future risks associated with regulatory uncertainty or changes in tax laws.
Accurately validating travel and expense data
This principle also extends to leaders handling both structured and unstructured travel and expense (T&E) data, whether domestically or internationally. The challenge finance leaders are facing is heightened by diverse foreign regulations governing what qualifies as recoverable VAT expenses. Manual procedures are more susceptible to errors, resulting in a significant portion of employee expense submissions failing to meet VAT reclaim criteria due to data gaps or inaccuracies.
Maximising VAT recovery is important for finance leaders, but it is equally important to understand why a VAT transaction was disqualified. Only then, will finance leaders be able to come with a solution that can help avoid these discrepancies in the future. One such solution involves the implementation of intuitive dashboards. These can empower finance leaders to drill down to transaction-level data, in order to further understand the errors that caused disqualification, thereby facilitating the optimisation of compliance and maximise reclaim. By harnessing intelligent VAT technology, businesses can also optimise their VAT data collection and management.
Reaping the rewards of effective tax reclaims
Ultimately, efficient VAT reclamation demands a multifaceted strategy. Leveraging modern technologies, with a human approach can empower finance leaders to comprehend tax complexities and address them proactively. Intelligent technology will be crucial in streamlining VAT data management, enhancing transparency and mitigating risks.
As global regulations evolve, businesses can benefit from relying on technology to give them a helping hand in optimising their bottom line.
